So Stuart Handel, chief operating officer of hedge fund Eton Park Capital Management, is leaving the firm to return next year to Morgan Stanley, where he will head the firm’s global prime brokerage operations. The obvious question: “What is wrong at Eton Park?” Handel is, after all, the fourth person to depart from the firm this year. But performance has been decent and there are no whispers that the firm has been misbehaving. Could it be simply that the money is better back on Wall Street?
If hedge fund returns are coming down but operational costs remain the same or even increase, profits are clearly being eaten into, and that means smaller bonuses all round.
Tom Hudson, CEO and founder of $1.7 billion Pirate Capital, has certainly had cost issues to contend with. The activist fund has had poor performance, and three of his investment professionals resigned at the end of September, reportedly because they were unhappy with cost cuts Hudson was implementing and expected diminished bonuses. Two analysts were also fired.
Handel’s move and the plight of Hudson raises the suspicion that traders are beginning to question the value of working for a hedge fund. Is it just easier to go and work for Wall Street where you aren’t reliant on a founder and boss who has invested time and money in his firm and expects you to perform and be loyal?
Furthermore, when you work for Wall Street, you will at least not be losing your own money. According to blog reports, Hudson told his firm’s investors: “My family and I have 90%-plus of our net worth invested in Pirate Capital.” If Pirate doesn’t increase its profitability, Hudson will be feeling the pain. Nick Maounis, founder and chief executive of Amaranth Advisers, which lost more than $6 billion in September admitted when apologizing to investors that the employees had lost a lot of their own money.
With this year’s bonuses on Wall Street forecast to exceed last year’s $21.5 billion, it will be interesting to see if those lured away to work for hedge funds because of the money will return to the investment banks from which they came.
